Principle 7: Enthusiastic People (Item 7)

Potential of an organization is realized through its people's enthusiasm, resourcefulness and participation.

Why this is important

The current thinking in almost every company worldwide is that you must pay-for-performance. That is, you need to offer monetary incentives for people to work; that people are motivated by monetary reward to perform for the company. This approach is destructive and does not work. However, it remains a persistent thinking that is extremely difficult to break.

The most basic flaw in the thinking is found by looking at the assumption that "people are motivated by monetary reward to perform for the company". The monetary reward causes people to work harder for themselves. They do things that will increase their monetary input. The emphasis has changed from doing things that will benefit the company to doing things to cause monetary benefit to themselves. This is especially so at the top of large companies where the size of the incentive is so large that it can cause behavior that is very destructive to the good of the company. The most obvious of these behaviors is the "notice me and how good I am" behavior. When engaged in this, the person has to take credit for other peoples' work and discredit anyone else who may look good.

Adjust the KPIs

When the rewards are high enough, we often see senior employees "modifying" reports and "adjusting" KPIs so that they continue to look good and look as though they are achieving their performance targets. Even though the real performance falls well short of the target.

This falsification of KPIs is not uncommon. It is very destructive to the company and its shareholders who are kept from the true picture. The practice of falsification of KPIs is a direct consequence of extremely high money incentive schemes.

[Auditing of KPIs and other performance measurements is extremely difficult. Most KPIs are generated by complex computer systems compiling data from many different sources. Audits of the validity of these are usually not conducted. We believe that they should be]

All incentive schemes stop good performance [1]

In the previous section, we described a considerable list of issues that people value, need and want in their workplace before they volunteer. Money is not usually high on this list. You cannot buy enthusiasm

There is plenty of anecdotal evidence that managers are dissatisfied with the "motivational" programs in their companies. A veritable herd of consultants waits with new gimmicks for manipulating people, new variations on the same old rewards theme. Unfortunately, the problems are not due to the way any one program has been implemented so much as to the simplistic premise of all pay-for-performance schemes. Here are eight reasons why incentive plans cannot succeed.

• The system people work in controls their productivity. From Principle 4 (`To Improve the Outcome, Improve the System'), we know that everyone is under the control of the system. The system they work in, and its processes, determine the quality and quantity of our work. Incentive plans are disguised `work harder' schemes. Working harder is not a long-term solution to better performance. Dollar motivation assumes that effort is being withheld and is waiting to be bribed out. That is, it assumes that working harder does work and if people are bribed enough they will break their lazy ways and do the right thing by the company. If I give you another $20,000 a year will you work harder? If so, why are you withholding that effort? I always knew you were a lazy sob!
• You cannot motivate people with money. You can demotivate them by taking it away. Although giving extra money does not produce extra effort, taking money away will produce a withdrawal of enthusiastic contribution. When people do not get the rewards they were hoping for (eg an expected bonus), the effect of this is, in practice, indistinguishable from being punished. The more desirable the reward, the more demoralizing it will be to miss out. A result is the alteration of company KPIs so employees (especially the senior managers) look good even when the company is not doing so well.
• Rewards rupture relationships. Research and experience increasingly show that excellence depends on effective teamwork, both because of the exchange of ideas that occurs and the climate of social support that is created. However, the scramble for rewards — particularly when they are made scarce, creating competition — destroys cooperation. Relationships between supervisors and subordinates, too, can collapse under the weight of incentives.
• People dissemble, cheat and lie in order to look good. If a supervisor issues penalties, employees will probably be as glad to see that person coming as they would be to glimpse a police car in their rear-view mirror. Even if he or she is seen as a rewarder, the effect is essentially the same. Employees will be tempted to conceal any problems they might be having, and present themselves as infinitely competent. Rather than asking for help, they may try to flatter that person and convince him or her that everything is under control. Very few things are as dangerous to a company as a collection of incentive-driven individuals trying to reassure (and curry favor with) the incentive dispenser.
• Rewards discourage risk-taking and destroy creativity. Whenever people are led to think about what they will get for doing something, they are very inclined protect their income by being overly cautious. Consequently, they are less inclined to take risks or explore possibilities; to play hunches that might not pay off or attend to anything whose relevance to the problem at hand is not immediately evident. The number one casualty of rewards is `creativity'. Excellence pulls in one direction; encouraging employees to think about how well they are doing; and what they will earn as a result pulls in another. The proof: a dozen psychological studies showing that the more people are led to think about rewards, the more they prefer easy tasks. Challenge is typically avoided not because of laziness but because incentive systems encourage concern about what one is going to get. "Do this and you'll get that" makes people focus on the "that" (the incentive) not the "this" (doing their jobs well). This means that prompting employees to focus on how much will be in their pay envelopes is about the last strategy we ought to use if we care about innovation and creativity.
• Rewards often produce threats and coercion. We know that fearful and threatened employees withdraw their enthusiastic voluntary contribution. "Whippings will continue until morale improves" is a saying that usually evokes a smile. The reality is that it is very common and takes the form the "coercion and fear will be enforced until performance improves". The fear is often fear of not getting the bonus or being fired. Coercion comes from all those who have an interest in the bonus. The result is a climate of fear and coercion, which certainly gives a performance result that is far from the optimum. This is the same Stimulus Response thinking of "Do this and you will get that" that produced the incentive reward approach. Again, the reward approach causes the exact opposite result to the one intended.
• Rewards undermine interest. Artificial incentives are much less effective than intrinsic motivation at ensuring interest in the company — they tend to undermine it. Incentives create self-interested employees. The more a manager gets employees to think about what they will earn for doing their jobs well, the less interested they will be in what they are doing. Again, "Do this and you'll get that" makes people focus on the "that" not the "this". Rewards turn play into work and work into drudgery.
• All incentive schemes fail. Scores of experiments have replicated the finding that people who are promised rewards for doing something are less likely to continue doing it when they have a choice as compared with people who are not promised anything.

If the question is, "Do rewards motivate people?" the answer is, "Absolutely! They motivate people to get rewards".

Changing the incentive will not work either

Several practical conclusions follow from the analysis above:

• It is not enough to change the type of bribe we offer (t-shirts versus trips versus cash), or the criteria for getting it, or the level at which it is offered (e.g., for teams instead of individuals). The problem is that we rely on bribes at all. Of the eight explanations above for how incentives impede performance, not one will disappear just because we manipulate people a little differently by using a different type of bribe.
• The problem is not with compensation, per se, but with turning compensation into a reward — that is, pushing money into people's faces by offering more of it if they do what they are told. The more closely compensation is conditioned on achievement, the more damage is done.
• We have to stop asking how motivated employees are, and start asking how employees are motivated. (And this is the heart of Principle 7. We want enthusiastic employees who volunteer their creativity. We need to know what people value.) Motivation is not a single entity, such that rewards can create more of "it". Rather, intrinsic motivation (loving what you do) is completely different from extrinsic motivation (doing something to get a goody) — and more of the latter often means less of the former.
• If "recognition" of employees is intended to control their future behavior, it will backfire as surely as programs involving tangible rewards. If recognition is intended only as a respectful acknowledgment of a job well done – an appreciation, then it should be done privately, non-competitively and in the context of a two-way conversion rather than as a patronizing pat on the head.
• The actual money paid is both a status symbol and a statement of appreciation. It allows feelings of "People think I am worth this much". When the status phpect dominates, it can lead to a scrabble for more status – and more money to prove it. Unfortunately, this scrabble is seldom to the benefit of the company and its other stakeholders.

Pay fairly and well

Kohn recommends that business owners pay employees fairly and well; and then do everything possible to help them forget about money. Manipulating behavior by offering inducements, although a sound approach for training the family pet, can never bring excellence to the workplace. Attempts to improve a company by fiddling with the compensation system are doomed to failure.

What should replace the carrot-and-stick thinking? The quick answer is that there are no quick answers. Kohn suggest three Cs that offer a good framework: choice, collaboration and content.

• Choice means that employees should be able to participate in making decisions about what they do every day.
• Collaboration concerns the need to structure effective teams so that the team does include all those needed to do the work.
• Content refers to the tasks on which people work; as Frederick Herzberg put it, "If you want people motivated to do a good job, give them a good job to do."

Successfully attending to these three factors is much more difficult than offering doggie biscuits to people for jumping through your hoops.

Paid volunteers

It is helpful to think of employees as `paid volunteers'.

Think of how you behave as a volunteer in your local community group. No one makes you go there. You go because you get something out of it. Fulfillment, being appreciated, social belonging, helping, contributing, giving, meeting people, having fun, doing your duty. An endless list of values and what you value and get in return for volunteering. None of the reasons can be about the money you receive. If you do not get value for your time, you stop volunteering. At first, you might withdraw your enthusiasm. Then if you really don't like it, you leave. You find something else to do with you time.

In the workplace, the same value for time equation is working. However, leaving can be more difficult. Employees are very often dependent on their paycheck with few other options. Throughout history, employers have taken advantage of that to demand work. That approach achieved what it deserved – work but not volunteering, enthusiasm or resourcefulness.

Each person works for him or herself

Everyone works for him or herself. This is a truism and more and more employees are realizing it and working to that concept. Let us examine its consequences.

It is the responsibility of each person to obtain as much value for his or her time as possible. In the old thinking, this would have said "It is the responsibility of each person to obtain as much money for their time as possible". We now know that to be only part of the equation – although an important part. Consider the following diagram.

Each person forms a picture of his or her self-worth. This is made up of two distinct parts – monetary and non-monetary in the form of other things of value (for example the `Employees value' list from earlier in Principle 7). The old thinking considered only the monetary side. The monetary side says "If the money is less than my picture of my monetary self-worth, I am undervalued by this company and I will search for a better match". This is where the reward thinking has focused. Reward thinking helps with status, but not much else. The non-monetary side says "If what I get out of work is less than what I value, I will withdraw". The new thinking is to give much more emphasis to the second of these. It helps with volunteering.

Footnotes

^[1] This section draws on the concepts presented in Alfie Kohn's excellent book Punished by Rewards. See our recommended reading list.